What Are Traditional Loans?

A traditional loan is a bank loan, pure and simple. But often there’s nothing simple about acquiring one of these loans, even if you go through the Small Business Administration. Below you’ll find videos, case studies, links and experts who can guide you to the resources that can help you get a bank loan.

Beyond business credit, which you can learn more about below, you’ll want to get started early with a lender. Building a relationship with a lender can be key to getting a loan, and the earlier you start (i.e. BEFORE you really need the money), the more your lender can help you along the way. By the time you are actually in need of the funding, hopefully your lender will feel confident giving you a loan. Bryan Moeller with Wells Fargo explains the importance of planning ahead and working with a lender in the video below.

Types of Traditional Lending

Bank loans

There’s only one type of traditional lending and it comes from a bank. However, there are different types of bank loans and working with a lender can help you determine which one may be best for your business. You’ll want to consider two major things when deciding between loan options:

The terms of the loan

The collateral required to obtain the loan

You’ll need to think long-term with a bank loan, since banks usually only give business loans for more than $250,000, you’ll likely be paying back what you borrow for a lengthy time period. Learn about the different types of bank financing below.

Working capital/Lines of credit

Business credit cards

Short-term commercial loans

Longer-term commercial loans

Equipment leasing

Letters of credit

While you can go to almost any bank for a business loan, there are some banks in particular that enjoy working with small businesses. To get started, research the banks below that work with small businesses and review the list of most active SBA 7(a) Lenders for more options.

How to Prepare for Your Lender Appointment

Ideally, you’re starting to work with a lender early on in your loan process, but even thought it’s early, there are still things you’ll need to know and come prepared with when you meet your lender. A few things you may need to have/know for your appointment are:

Piecing Together the Right Capital

The Importance of a Lender Relationship

Traditional Lending vs. Alternative Lending

You may be wondering, if traditional loans can be difficult to get, why you should try to get one, especially since there is an abundance of alternative types of funding. For some reasons, traditional funding may be a better option for your business.

Bank loans usually:

Have lower interest rates

Offer tax benefits

Allow you full ownership (as opposed to venture capital)

If your business is in a good position to apply for a bank loan, it could be more beneficial than alternative funding. If not, other options such as online lenders or crowdfunding may be right for you.

While banks are likely still feeling wary about small business lending because of the 2008 recession, their trepidation isn’t always the cause for a lack of loans. If business owners do their research, build their business credit and develop a relationship with a lender, they may be able to acquire a bank loan.

Help from the SBA

Some organizations work with lenders to help small businesses get loans. One of these organizations is the Small Business Administration (SBA). The SBA works with lenders and small businesses through their 7(a) loan program, where they guarantee part of a small business loan in the result the business owner defaults. This helps mitigate risk for the lender and can help small businesses get loans. Learn more about the SBA and their loan program in the video below.

Build Your Business Credit Now

Traditional lenders might not approve many small business loans, but when they do, the terms and conditions tend to be more favorable. Because of this, most businesses might want to consider building their business credit while they are relying on alternative lending so that down the line they can try to qualify for a bank or SBA loan.

The first step is to get your paperwork in order, or you may be stuck relying on personal credit cards for business expenses. You can start building your business credit by using your company’s Tax ID Number or Employer Identification Number to get registered with business and credit bureaus. Make sure all your corporate records, state filings and business licenses are up to date — as well as your contact information for faster credit checks.

Once you have everything ready, it’s time to start building credit. While alternative lending is an important asset for business owners, it’s important to remember that any credit history takes time and planning. Entreprenuer.com recommends the following steps to help build and grow your business credit:

Maintain your personal credit. New businesses do not yet have their own credit history, and evening existing businesses will experience personal credit checks—especially if you own more than a 20% stake in the business.

Obtain credit early. Don’t wait until the last minute when you are desperate to make a repair or pay a bill. Apply for credit before you need it during start up to help build your credit history.

Cultivate your credit. Use your credit to help establish good payment histories, and remember to keep those balances low. The length of your credit history is important, as is your history to meet your commitments and pay off your debts.

Use multiple lenders. Every lender has different policies, and these policies can change with very short notice. By having credit lines through multiple lenders you will be better prepared in the case of sudden emergencies or short-notice account closures.

While banks are likely still feeling wary about small business lending because of the 2008 recession, their trepidation isn’t always the cause for a lack of loans. If business owners do their research, build their business credit and develop a relationship with a lender, they may be able to acquire a bank loan.

Help from the SBA

Some organizations work with lenders to help small businesses get loans. One of these organizations is the Small Business Administration (SBA). The SBA works with lenders and small businesses through their 7(a) loan program, where they guarantee part of a small business loan in the result the business owner defaults. This helps mitigate risk for the lender and can help small businesses get loans. Learn more about the SBA and their loan program in the video below.